Fed Members Want Balance Sheet Trim by End of the Year

Most Federal Reserve policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet later this year as long as the economic data holds up, minutes from their last meeting showed.

The minutes released on Wednesday of the March 14-15 policy discussion, at which the Fed voted 9-1 to raise interest rates, also showed that the rate-setting committee had a broad discussion about whether to phase out or halt reinvestments all at once.



“Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year,” the Fed said in the minutes.

Treasury yields rose sharply after the release of the minutes. The dollar briefly slipped while stocks on Wall Street slightly cut gains.

The Fed bought Treasury and mortgage-backed bonds on an unprecedented scale in the wake of the financial crisis to help keep interest rates low to spur hiring and growth.

Fed policymakers have previously indicated that any plan to shrink its portfolio would let the bonds naturally roll off, by not reinvesting them when they mature, once its interest rate hikes were “well under way.”

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza